Wednesday, March 28, 2012

In an essay entitled ‘The Idea of Progress’ (published in
1979) Robert Nisbet, an American sociologist, suggested:

‘Disillusionment with
science and technology is very much a part of the intellectual landscape, and
it would be a rash soul indeed who declared it a purely peripheral and
transitory thing’.

It would probably be fair to say that disillusionment with
science and technology is now fairly common among the general populace of high
income countries. Data from World Values Surveys conducted in 2005-08 show that
the percentages who completely agree with the proposition that science and
technology are making our lives healthier, easier and more comfortable are only
around 14% in Australia, 11% in the US and 6% in Japan. The corresponding
percentages are much higher for countries with lower incomes: 31% for Mexico
and China and 40% for Indonesia.

Nisbet argued that the idea of progress was born of Greek
imagery and is central to Christianity with its emphasis on hope - to be given
gratification in this world as well as the next. He observes that rationalist-secular
confidence, once so great in Western society, has been fast-diminishing as
a result of boredom with the goods, material and psychic, provided by modernity
as well as disillusionment with science and technology. In his concluding
paragraph he speculates that a renascence of religion might ‘fill the vacuum
brought on by those elements of modernity … and with this, a shoring-up of the
idea of progress from past to future’.

Nisbet seems to be suggesting that belief in progress involves
faith. It arose from religious faith and may return to those roots as
enthusiasm for science and technology wanes.

Does belief in progress have to involve faith? For a couple
of centuries in western countries enthusiasm for technological progress did
involve faith. It was akin to religious faith, with doctrines about the inevitability
of progress – in some accounts even according to laws of evolution or laws of
history. It is possible, however, to believe that, on balance technological
advances are beneficial, without having much confidence that they will necessarily
make our lives healthier, easier and more comfortable.

Data in the World Values surveys on whether it would be a
good or bad thing if there was more emphasis on technology in future may
reflect a widespread belief that, on balance, technological advances are
beneficial. Despite their reluctance to agree completely that technology is
making their lives better, only a small percentage of people in high income
countries say that more emphasis on technology would be a bad thing – and the
percentages don’t differ in any obvious way from those for low income countries.
(The relevant percentages for Australia, US, Japan, Mexico, China and Indonesia
are 6%, 7%, 5%, 7%,1% and 14% respectively.)

It seems to me that Karl Popper’s institutional theory of
scientific and technological progress provides an appropriate framework in
which to consider the possibility of progress. The basis of Popper’s theory is
that there are ‘conditions for progress’ and hence conditions under which
progress may be arrested. Popper emphasized that science is based on free
competition and thought:

‘If the growth of reason is to continue, and human
rationality to survive, then the diversity of individuals and their opinions,
aims, and purposes must never be interfered with (except in extreme cases where
political freedom is endangered). Even the emotionally satisfying appeal for
a common purpose, however excellent, is an appeal to abandon all
rival moral opinions and the cross-criticisms and arguments to which they give
rise. It is an appeal to abandon rational thought’.

Popper concluded:

‘The mainspring of evolution and progress is the variety of
the material which may become subject to selection. So far as human evolution
is concerned it is the 'freedom to be odd and unlike one's neighbour'--'to
disagree with the majority, and go one's own way'. Holistic control, which
must lead to the equalization not of human rights but of human minds, would
mean the end of progress’ (‘The Poverty of Historicism’, 1957, Chapter IV).

Wednesday, March 21, 2012

I have previously expressed the view on this blog that if
progress is to have any meaning from a public policy perspective it must mean
movement toward a good society or movement from a good society to a better
society. The improvement of society can, of course, be referred to as ‘social
progress’.

When I did an internet search on ‘social progress’, the
second item listed was the United Nations Declaration on Social Progress and Development adopted in 1969. This Declaration stands in stark contrast to the resolution
sponsored by Bhutan and adopted in July last year calling on Member States ‘to
pursue public policy steps that would better capture the importance of pursuing
happiness and well-being in development’.

As might be expected, the 1969 UN declaration begins by
asserting the value of humans and the rights of everyone to enjoy the fruits of
social progress. Without attempting to define social progress it then goes on
to assert that social progress requires the ‘full utilization of human
resources’ and giving everyone the ‘right to work’. The declaration then
proclaims the importance of economic growth to social progress:

‘The rapid expansion of national income and wealth and their
equitable distribution among all members of society are fundamental to all
social progress, and they should therefore be in the forefront of the
preoccupations of every State and Government’.

I guess the authors were trying to make the point that growth
in productivity and technological progress are central to meeting the
aspirations of people to improve their living standards. In the preamble to ‘Part
II Objectives’ it is asserted that ‘progress and development shall aim at the continuous
raising of the material and spiritual standards of living of all members of
society’. The recognition of spiritual needs is interesting, but the authors
gave no hint of what they meant by ‘spiritual standards of living’. Considered
as a whole, the document has the appearance of having been drafted by economic
planners to foster greater recognition of their own importance.

Perhaps I should view the UN Declaration on Social Progress
as a product of its times and be glad that the UN has moved on. I can’t help
feeling, however, that the wording of the document is particularly crass, even given
views that were prevalent at the time the document was written.

If the authors had wanted to emphasize the aspirations that
people have for improvement of their material living standards it would not
have been hard for them to come up with an appropriate definition of social
progress in those terms. For example, they could have written a definition,
along the lines I have drafted below, based on words used by Ludwig von Mises, leader of the Austrian
School of economic thought, in his book ‘Theory and History’, which was
published in 1957:

Most humans want to live and to prolong their lives; they
want to be healthy and to avoid sickness; they want to live comfortably and not
to exist on the verge of starvation. Advance toward these goals means progress,
the reverse means retrogression.

If the authors had set their sights a little higher they
might even have been able to benefit from the thoughts of another famous
Austrian economist, Friedrich Hayek:

‘In one sense, civilization is progress and progress is
civilization. The preservation of the kind of civilization that we know depends
on the operation of forces which, under favourable conditions, produce
progress. If it is true that evolution does not always lead to better things,
it is also true that without the forces which produce it, civilization and all
we value – indeed almost all that distinguishes man from beast – would neither
exist nor could long be maintained’(‘Constitution
of Liberty’, 1960, 39-40).

Hayek saw progress as a process of learning, the cumulative
growth of knowledge which when achieved becomes available for the benefit of
all. He wrote:

‘It is through this free gift of the knowledge acquired by
the experiments of some members of society that general progress is made
possible, that the achievements of those who have gone before facilitate the
advance of those who follow’ (p 43).

Monday, March 12, 2012

A post I wrote on this topic in 2010 attracted a fair amount
of interest. That might be explained by the provocative title: ‘Once a neurotic always a neurotic?’ The view presented was that while personality is generally fixed by
about age 30, there is some evidence of personality change among older adults,
associated with such things as use of anti-depressant drugs, cognitive
behavioural therapy and meditation.

Recent research has provided evidence that personality is
much more variable than it was previously thought to be. The findings of some relevant research by Christopher Boyce, Alex Wood and Nattavudh Powdthavee are summed
up in the title of their article: ‘Is Personality Fixed? Personality changes as
much as “variable” economic factors and more strongly predicts changes to life
satisfaction’. (The article has been published in ‘Social Indicators Research’).

The research uses data from the HILDA surveys, which in 2005
and 2009 asked 8,625 Australians questions designed to measure their personality
according to the Big Five criteria: openness to experiences, conscientiousness,
extraversion, agreeableness and neuroticism. The authors found substantial
variation of all personality criteria between the surveys. The variation of
agreeableness and neuroticism for the same individual was about half as great
as the variation between individuals.

In their initial analysis the authors corroborated earlier cross-section
research showing that some personality factors have large impacts on life
satisfaction. They found that emotional stability (the opposite of neuroticism)
had the greatest impact, followed by agreeableness and extraversion. The
estimated coefficients on the personality variables were generally somewhat
lower in the analyses focusing on the effects of changes over time suggesting to
me that some of the apparent change in personality might be attributable to
measurement error. Nevertheless, the implied impacts of change in personality are
still relatively large by comparison with the impacts of the economic variables
such as income and employment status.

What are the implications of the finding that individual
life satisfaction may change substantially over time as a result of personality
changes? The answer depends partly on how important we see life satisfaction in
the context of the overall quality of life. For example, it is interesting to
speculate that the phenomenon that Carol Graham describes as the happy peasant,
frustrated achiever paradox – happiness declining for some people whose wealth is
rising – could be attributable to personality change. People may choose to have
opportunities for better education and higher incomes, even if this may result
in some loss of contentment (perhaps as a consequence of personality changes).

It is difficult to consider the implications of changes in
personality without knowing what causes personality to change. I found it
surprising that the results suggest that the adverse impact of unemployment on
life satisfaction is independent of personality change. (The estimated
coefficient on unemployment remains unchanged when the personality variables
are introduced into the analysis.)

Boyce et al speculate that personality change could be
associated with environmental factors and that public policy could foster
positive environments. However, the example they give of the possibility of
personality change through improved availability of mental health services
might have more to do with changing perceptions of experience and of identity
than with changes in environmental factors.

It is possible that the effects of individual personality
changes might tend to wash out in large samples. Those whose life satisfaction
rises as a result of personality changes might be balanced by those whose life
satisfaction falls. But is not inevitable
that this will happen. Perhaps pervasive changes in personality at an
individual level might be reflected in changes at a national level in the
extent of uncertainty avoidance or in the extent to which people are prepared
to trust others.

It will be fascinating to see what light further research is
able to shed on the causes and effects of personality changes.

Saturday, March 10, 2012

There has been a spirited discussion in recent years about
the effects of inequality of income distribution on the social fabric and the
quality of life. As noted in an earlier post, it seems likely that inequality has
some adverse effects on life satisfaction which are independent of the income
levels of the individuals concerned. Stronger claims have been made by Richard
Wilkinson and Kate Pickett in their book, ‘The Spirit Level: Why More Equal Societies
Almost Always Do Better’. These authors suggest that in association with
lower social trust, a wide range of health and social problems are worse in
societies in which inequality is higher. The evidence has been hotly contested
- references to opposing contributions listed on a Wikipedia site.

It seems more likely that the correlation that has been
observed between low income inequality and high social trust is the result of
high social trust leading to a reduction in inequality, rather than a reduction
in inequality leading to higher social trust. The big welfare states have been
undeniably successful in reducing inequality of income redistribution. Andreas
Bergh and Christian Bjornskov have provided evidence that historical levels of
social trust may predict the current size of welfare states. High trust levels
could be expected to help sustain big welfare states by limiting problems
caused by free riding on welfare, by reducing the costs of regulation and
monitoring, and by reducing tax evasion and revenue collection problems.

In this post I want to discuss evidence linking trust levels
with the importance that people in different countries place on progress toward
a more humane society and government action to reduce income inequality.

The first step is to consider whether there is a link
between social trust and high priority for progress towards a more humane
society. The World Values Survey asks respondents to choose which goal is most
important: a stable economy; progress toward a less impersonal and more humane
society; ideas count more than money; and the fight against crime. Individuals
who say that most people can be trusted are more likely to select a humane
society and less likely to select the fight against crime as the most important
objective. The percentages from the 2005-08 survey choosing progress toward a
less impersonal and more humane society are plotted in Figure 1 below against
levels of social trust for 53 countries.

Figure 1 suggests that in societies in which there are high
levels of social trust, a higher proportion of the population tend to attach
most importance to the humane society objective. The main exceptions are for
low income countries (China, Vietnam and Indonesia) in which priorities could
be expected to be different. France is also exceptional in having a relatively
high attachment to the humane society objective despite relatively low levels
of trust. This case is particularly interesting in terms of the direction of causation.
There are some obvious historical reasons why French people could be expected
to attach importance to the humane society objective (egality, fraternity etc.)
despite relatively low social trust, but there does not seem to be any obvious
reason why French people should have relatively low levels of trust if causation
ran in the opposite direction.

The next step is to look at the link between the humane
society objective and income inequality. Figure 2 shows the level of income
inequality after taxes and transfers (as measure by the gini coefficient) plotted
against the proportion of the population attaching most importance to the
humane society objective for 21 OECD countries.

Figure 3 shows the link between the humane society objective
and government involvement in income redistribution for the 21 OECD countries.
The extent of income redistribution is measured as the ratio of the gini
coefficient after taxes and transfers to the gini coefficient before taxes and
transfers. The value of the variable would be 1.0 if there are no taxes and
transfers which reduce income distribution. The ratio is shown in reverse order
on the vertical axis. Countries with the greatest income redistribution appear
at the top of the chart.

Figure 4 shows the link between the humane society objective
and a measure of egalitarian sentiment from the World Values Survey. This measure
is derived from responses to a question asking for a value from 1 to 10 to be
assigned depending on whether views are closer to the proposition ‘Incomes
should be made more equal’ (1) or ‘We need larger income differences as
incentives’ (10). The percentages with ratings from 1 to 4 were used as a
measure of egalitarian sentiment.

Figure 2 shows that disposable income (i.e. income distribution
after tax and transfers) tends to be more equal in countries where a relatively
high proportion of the population view the humane society objective as
particularly important. Chile is an obvious exception.

Figure 3 shows that the extent of government income
redistribution tends to be greatest in countries where support for the humane
society objective is greatest. The extent of redistribution is lower than would
be predicted on this basis in Chile, Mexico, Turkey and Korea, but these are
all countries with relatively low average incomes by OECD standards.

Figure 4 shows that, as might be expected, egalitarian
sentiment tends to be greatest in countries in countries in which there is
greatest support for the humane society objective. However, comparing Figure 3
and Figure 4, it is apparent that high levels of redistribution are not always
associated with strong egalitarian sentiment. For example, egalitarian
sentiment seems to be particularly strong in Chile and Switzerland which have
redistribution levels somewhat lower than might be predicted on the basis of support
for the humane society objective. In the case of Sweden, redistribution is
greater than might be predicted and egalitarian sentiment is lower than might
be predicted.

The overall picture that emerges is consistent with the view
that inequality of income distribution tends to reflect social values. People
in high trust societies tend to have greatest support for moving toward a more
humane society and greatest income redistribution, leading to relatively low
income inequality. Although egalitarian sentiment tends to be greatest in
countries where there is greatest support for moving towards a more humane
society, it is stronger in some countries in which there has been little income
distribution than in countries that have extensive redistribution. The experience
of a big welfare state may dampen egalitarian sentiment.

Monday, March 5, 2012

At the end
of my last post I suggested that the evidence on changing income redistribution
– in the OECDs recent publication ‘Divided We Stand’ - poses some serious
questions to those of us who are inclined to argue that governments can create
widespread opportunities by just getting out of the way. I stick by that, but I
don’t see much that is of particular concern in trends in income distribution
in OECD countries since the mid-1980s.

In his discussion of Wayne Swan’s recent ravings about income distribution, Henry
Ergas agreed with Swan that it is possible to avoid a rising gap between income
growth of those at the top of the income distribution and those at the bottom.
He noted, however, that ‘the four countries that from the mid-1980s on, most
conspicuously did so’ were ‘Portugal, Ireland, Greece and Spain, usually known
as the PIGS. In those countries, the bottom 10 percent’s incomes increased by
about 1.7 percent more a year than those of the 10 percent at the top’.

I had missed
this point when I first looked at the ‘Overview’ of ‘Divided We Stand’. When I looked
at the relevant table, it seemed like a good idea to graph the data. The result
is shown below.

The PIGS
certainly stand out for their success in achieving relatively high rates of
growth for those in the bottom 10% of the income distribution. As expected, the
growth in average incomes of those at the bottom of the income distribution in
the United States was substantially lower than for those at the top – but the
same is also true of Sweden. This presumably reflects substantial economic
reforms undertaken in Sweden since the mid-1980s.

The growth
in incomes for those in the lowest 10% of the income distribution in Australia looks fairly good by comparison with most other countries, and the income growth
that occurred is hopefully more likely to be sustained that for the PIGS.

The overall
picture shown in the graph suggests a fairly loose relationship between the
growth in incomes at the top and bottom of the income distribution. Is the
relationship any closer between growth in incomes at the top and in the middle
of the distribution?

The second
graph suggests that there has been a fairly close relationship between growth in
incomes at the top of the income distribution and those in the middle. Given
all the talk about rising income inequality in the United States, I was
surprised to see that the US does not stand out in terms of incomes at the top
rising much more rapidly than those in the middle. What is all the fuss about? Are
the researchers who view rising inequality in the US as something exceptional looking at more recent
trends? Or are they jumping at shadows?

Postscript:

After some further reading, I am inclined to answer my
questions as follows:

1.Most of the fuss has been about increases in
incomes of the top 1% in the US. The increase in share of the top 1% was
relatively large by comparison with most other OECD countries. See Figure 12 of
the ‘Overview’ of ‘Divided We Stand’.

3.The issue is whether the increase in the incomes
of the top 1% is at the expense of the rest of the population. Various
explanations have been given for the rapid increase in incomes at the very top
of the distribution, but I don’t think a convincing case has been made that there has been systemic market
failure. With the benefit of hindsight some remuneration experiments could be
counted as failures, but it would be unreasonable to expect all market experiments to succeed. Failure of particular remuneration experiments doesn’t mean that the 99% would benefit from
regulation of the remuneration of the 1%, or from higher taxation of the income
of the 1%.

Sunday, March 4, 2012

In his recent essay about
the rising influence of ‘vested interests’ in Australia, Wayne Swan, the treasurer,
notes that we Australians ‘always prided ourselves on being a nation that’s
more equal than most – a place where if you work hard, you can create a better
life for yourself and your family’ (‘The Monthly’ March 2012). He argues that
this ‘fair go’ ethic is ‘under threat’ from ‘the rising power of vested
interests’. He was not referring to the union movement, which has exercised
extraordinary influence under the Gillard government. He was referring to
wealthy people who have campaigned in recent years against a new resource rent
tax and carbon taxes.

Swan claims:

‘A handful of vested interests that have
pocketed a disproportionate share of the nation’s economic success now feel
they have a right to shape Australia’s future to satisfy their own self
interest’.

An editorial in the Australian Financial
Review (AFR, 3-4 March) contrasted the tone of Wayne Swan’s essay with that of
an essay by Bob Carr, former premier of New
South Wales, which was published in the AFR on the
preceding day. The AFR noted:

‘Mr Carr’s thoughtful musings on the crisis
of democratic socialism and the need for Labor to embrace the reform era of the
Hawke-Keating era stand in stark contrast to Mr Swan’s belligerent swipe
against private enterprise’.

Carr’s comments about the reforms of the Hawke-Keating
era are worth quoting:

‘The best bet for Australian Labor might be
to embrace and not shy away from the bold economic reform of the Hawke-Keating
era. British Labor will sound absolutely inauthentic if it repudiates Blairism.
In a similar spirit, Australian Labor cannot walk away from its legacy and is
entitled to define itself as the party of economic liberalism, open markets and
rising living standards’.

Bob Carr’s article was written before he
knew that he was about to become Australia’s foreign minister.
Unfortunately, it is not likely that he will be able to continue to write sensibly
about Labor politics while in his new position.

The AFR editorial went on to suggest that Swan
‘is wedded to an outdated ideology’ and to claim that ‘Mr Swan is arguably the
most left-wing treasurer since Jim Cairns’. (Jim Cairns was federal treasurer
for a brief period in the 1970s.)

I rarely read newspaper editorials, let
alone quote them, but that one seemed to me to be exceptionally good. There
are, however, a couple of points that I would like to add.

My first point is that it is particularly
obnoxious for a government representative to criticize people for trying to
defend their wealth against confiscatory taxation. There may be a strong case
for governments (state rather than federal) to obtain a larger share of
resource rents on behalf of citizens, but it was outrageous for the federal
government to seek to do this by changing the rules applying to existing mining
projects. When an investment has been made on the basis that governments will take
a share of rents according to a particular set of rules it is extreme
opportunism (if not theft) to announce a sudden change in the rules which
enable the government to take a larger slice of rents. In my view the miners
are entitled to argue that such behaviour is contrary to Australia’s ‘fair go’ ethos.

My second point is that the tone Wayne Swan
has adopted is counter-productive if his aim is to promote serious
consideration of the issues associated with changes in income distribution. Swan
refers to the recent OECD publication, ‘Divided We Stand: Why Inequality KeepsRising’. This report suggests that income inequality is likely to rise in countries
like Australia
in the absence of ongoing government involvement in extensive income
redistribution.

The evidence on changing income
redistribution poses some serious questions to those of us who are inclined to argue
that governments can create widespread opportunities by just getting out of
the way. It also poses the serious question for advocates of redistribution of
how they propose to build widespread community support for removal of disincentives in the tax-welfare system. In that regard, Wayne Swan’s performance
could only be described as abysmal.

Emancipation

Welcome!

Welcome to Freedom and Flourishing. While you are here, why not take a look around and leave some comments.

There is a list of my most popular posts below. I am pleased that a post about characteristics of a good society, that I wrote in 2009, is still one of the most popular. That post captures some of the ideas about freedom and individual human flourishing that I think are most important.